Dairy firms accused of price fixing in Vietnam

Thanh Nien News (The story can be found in the March 7th issue of our print edition, Vietweek)

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Five major dairy firms have increased their prices over the past weeks, prompting relevant authorities to launch inspections as experts call for more transparency in the dairy trade

A woman selecting milk at a supermarket in downtown Ho Chi Minh City. Relevant authorities have pledged to launch inspections after major dairy firms in Vietnam were accused of price fixing. Photo: Dao Ngoc Thach
Nguyen Hong Huong spends at least half of her VND4 million (US$190) monthly salary on milk for her two young daughters and the cost is only going up.
“It’s not because my children drink more but because milk prices have increased repeatedly,” said the secondary school teacher in Ho Chi Minh City.
“I spend VND200,000 more on milk every month recently. I am afraid that I can’t afford it anymore,” she said.
Many people have been worried about repeated milk price hikes over the past years but they have become even more concerned recently with a simultaneous price increase by several major dairy firms, prompting actions by relevant agencies to inspect the hikes’ legality.
At a meeting of the central government on February 28, Prime Minister Nguyen Tan Dung instructed relevant agencies to inspect recent increases in prices of milk for children under six years old by Vinamilk, Mead Johnson Vietnam, Nestlé Vietnam and FrieslandCampina Vietnam.
Nguyen Thien Nhan, chairman of the Vietnam Fatherland Front, an umbrella group of the country's public organizations, said there must have been a collusion in price increases which is in breach of the Competition Law.
“In a market with five competitors, there are high risks of agreements on price increases, causing damages to consumers,” he said.
At a press conference on March 3, Deputy Minister of Industry and Trade Do Thang Hai said his ministry would work with the Ministry of Finance to investigate the allegations.
But Nguyen Phuong Nam, deputy director of the ministry’s Competition Management Department, said his agency has monitored milk prices over the past two years and there has been no sign of violations to the competition law.
On March 4, the Ministry of Finance announced it would probe five dominant diary firms and come up with measures to contain their constant price hikes.
Nguyen Anh Tuan, director of the ministry’s Price Management Department, said his agency would check pricing policies at foreign firms including Mead Johnson, Nestlé, and FrieslandCampina, Vinamilk - Vietnam’s largest diary firm - and 3A Nutrition JSC, which distributes Abbott.
Tuan said his department could ask to carry out measures to stabilize prices after the investigation, like a price cap on products for children below 6 years old.
Dubious hikes
While the Competition Law bans collusion on price fixing, at least five major dairy firms have increased retail prices over the past two months.
Many shops said Vinamilk announced a price increase for many products from 5-7 percent in February. For example, its popular product, Dielac Alpha 1, increased from VND210,000 to VND235,000 per 400-gram can.
In January, Abbott increased prices of several products by five percent and Mead Johnson increased by 5-7 percent. Nutifood also increased retail prices of many products by 7-10 percent.
Nestlé also announced an increase in retail milk prices in late January.
Tuoi Tre (Youth) newspaper quoted an anonymous representative of FrieslandCampina Vietnam as saying that the company was seeking to increase milk prices, citing high input costs.
A finance ministry source said it had only approved the recent price increase by Mead Johnson Vietnam because its explanation was “convincing”, according to the paper.
The ministry instructed Nestlé Vietnam to halt price increases until it submits documents proving increasing input costs. However, Nestlé still increased the prices of its dairy products on the market.
Several companies questioned by local media, including Vinamilk, Nutifood, Nestlé, Abbott and Dutch Lady all rejected accusations about price fixing agreements and blamed high input costs for the recent hikes.
Since late 2013, major dairy firms have filed requests with the finance ministry to raise their retail prices by 3-8 percent to catch up with rising costs.
While 70 percent of dairy production depends on imported raw materials, the global prices of major ingredients such as milk powder and butter have increased by 30-57 percent this year compared to a year ago.
Vinamilk said it has also had to pay dairy farmers 22 percent more since late last year for fresh milk.
Tuoi Tre reported last year that imported infant formulas were sold at three or four times their import prices since companies were paying doctors and nurses to recommend their products to pregnant women and new mothers at medical conferences.
Insiders say the differences between import and retail prices are bigger for famous brands like Abbott and Mead Johnson.
Dairy costs have been a burden on the physical growth of Vietnamese children, as middle-income parents said formula for their children costs half of their salaries.
The burden officially became national when the government last October announced it would delay a $10 billion program to increase the population’s average height by providing free milk at nurseries and primary schools in the country’s 62 poorest districts.
Last August, China fined six companies, including Mead Johnson Nutrition Co, Danone and New Zealand dairy giant Fonterra, a total of $110 million following an investigation into price fixing and anti-competitive practices by foreign baby formula makers.
The other three penalized were Abbott Laboratories, Dutch dairy cooperative FrieslandCampina and Hong Kong-listed Biostime International Holdings, the National Development and Reform Commission was quoted by Reuters as saying.
Tuan, the price management official, told Tuoi Tre that if relevant authorities in Vietnam find involved dairy firms flouting competition laws, alongside price management regulations, fines against them would be higher than the current maximum of VND60 million ($2,845).
Their profits from illegal price increases would be revoked and contributed to the state exchequer, he said.
However, Tuan admitted that it was difficult to manage retail prices because his agency only managed the prices the companies sell at to first-level agents.
A dairy shop owner on Hanoi’s Doi Can Street, who wanted to remain anonymous, said a product is distributed through several agents before retailing which results in higher prices than the retail prices the company registered with relevant authorities.
Ngo Tri Long, former deputy director of the Market and Price Research Institute, said the management of milk price has been ineffective.
He cites the case of Nestlé Vietnam, who blamed inflation and increased the prices of 11 products recently without approval from the finance ministry as required.
“There should be immediate inspections for an accurate and early result,” he said.
He proposed that the government stipulate maximum prices for dairy products, based on input costs.
“This is totally possible because dairy products are commodities whose prices are controlled by the government. Moreover, the market is dominated by a few companies, which can be called a monopoly grouping and the prices of their products should be managed strictly,” he said.
Tuoi Tre quoted an anonymous expert as saying that the Competition Management Department should conduct an independent inspection besides the finance ministry’s inspectors.
However, Vu Vinh Phu, former deputy director of the Hanoi trade department, was not optimistic about dairy firm inspections given the recent dubious hike in 3G tariffs by local telcos which inspectors concluded was not price fixing.
“High milk prices have been complained about for the past ten years without any solution. Vinamilk recently increased prices by five percent... Is it reasonable? Who is in charge of proving it?” he was quoted by Dat Viet newspaper as saying.
“There is no transparency in the milk trade. Both the information and coordination [between involved agencies] are not transparent.”
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